Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Thursday, October 17, 2013

Acquisitions, Entry, and Innovation in Network Industries

Pehr-Johan Norback, Research Institute of Industrial Economics (IFN), Lars Persson, Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR) and Joacim Tag, Research Institute of Industrial Economics (IFN) describe Acquisitions, Entry, and Innovation in Network Industries.

ABSTRACT: In industries with network effects, incumbentsÂ’ installed bases create barriers to entry that discourage entrepreneurs from developing new innovations. Yet, entry is not the only commercialization route for entrepreneurs. We show that the option of selling to an incumbent increases innovation incentives for entrepreneurs when network effects are strong and incumbents compete to preemptively acquire innovations. We thus establish that network effects and installed bases do not necessarily restrict innovation incentives. We also show that network effects promote acquisitions over entry and that the entrepreneur has strong incentives to invest in the initial user base of the innovation.

http://lawprofessors.typepad.com/antitrustprof_blog/2013/10/acquisitions-entry-and-innovation-in-network-industries.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef019aff3f5480970d

Listed below are links to weblogs that reference Acquisitions, Entry, and Innovation in Network Industries:

Comments

Post a comment